【出版时间及名称】:2010年4月美国保险行业研究报告
【作者】:摩根大通
【文件格式】:pdf
【页数】:91
【目录或简介】:
Like all raging parties, at some point, the night must end, and the resulting
hangover begins. Similarly, the good times the US non-life insurance industry has
enjoyed, thanks in large part to significant reserve releases from the best vintages
of the recent hard-market, appear to be behind us. Looking back, favorable
development from the 2002-2006 accident years has added the equivalent of 1.3
years worth of earnings, or more than 20% to book value growth, which has more
than offsetting a drag of 0.4 years, or 7%, from the 2000-2001 accident years over
the same period. The reserve development has helped mask the recent erosion of
accident-year underwriting margins and reinvestment rates. We believe the
industry, particularly commercial underwriters, will experience rapid erosion in
reserve releases over the next 12-18 months. The reserve balances associated with
the best vintages of the hard market have mostly evaporated. In addition, recent
accident year trends are mixed with 2007 generating slightly favorable
development, but 2008 suffering adverse development. Finally, earnings
expectations may already be discounting too much development going forward.
• 2009 appears to be the inflection point signaling an end to the good times.
Based on our analysis, 2009 represents the first year in which reserve
development has declined adjusting for 2005 catastrophe losses. First, the
contribution to calendar-year return on equity decreased approximately 30 bps
versus 2008. Second, the absolute dollar-value of reserve development in our
composite declined by almost 17%. A significant contributing factor to this
change was adverse development from the 2008 accident year.
• The hard market vintages appear to be almost empty. In past hard markets,
approximately 80% of all favorable development the industry recognized was
realized in the first 48 months after the close of an individual accident year. For
comparison, all the accident years of the recent hard market, except 2006, are
past that peak. Contrasting current reserve balances with the average balances of
the most recent hard market suggests the industry's reserves are following past
cycles.
• Development already appears to be discounted into EPS estimates. In the
past four years that we have published this report, EPS estimates did not
incorporate significant levels of development. As a result, in 2006-2009,
reported development outpaced estimates. It is unclear if that will be the case in
2010. Based on our current estimates, reserve development is expected to
contribute approximately 20% and 10% of 2010 and 2011 EPS, respectively, for
our universe (while consensus estimates are slightly higher in most cases).
• Many stocks with high reserve leverage already incorporate goods news. As
we illustrate later in this report, many of the stocks that appear to have aboveaverage
leverage to any remaining favorable development already incorporate
that good news in estimates. Specifically, Allied World (AWH: N) and Axis
Capital (AXS: N) have benefited from above-average levels of development, but
also above-average contributions to EPS baked in. Meanwhile, Arch Capital
(ACGL: N), Endurance Specialty (ENH: OW), and Platinum (PTP: N) have
more leverage than EPS expectations imply.
Table of Contents
Understanding & Navigating This Report ..............................4
Is The Reserve Party Over? Likely Yes ..................................5
Summary: It’s Baked-In Already..............................................9
Accident-Year Reserve Leverage:.........................................12
Reserve Exposure to Good and Bad Accident Years.................................................12
Premium Exposure to Hard & Soft Market Years .....................................................13
Reserve Development and EPS Leverage..................................................................14
Realized Development to Date ..................................................................................17
Mix Helpful in Clarifying Leverage Analysis ........................19
Premium Mix .............................................................................................................19
Liability Mix..............................................................................................................21
INBR versus Case Reserves.......................................................................................22
Economic Book & Valuation Implications............................26
Understanding Time-Value In Reserves ....................................................................26
Valuations Slight Cheaper Using Economic Book ....................................................29
Risks to Our View......................................................................................................32